Claims to verify · Before you buy
How to verify the working capital needed after closing
Published · Reviewed by The Diligence Standard Team · Updated
Profit does not show when cash arrives. Review monthly balances, seasonality, billing and supplier terms, excluded assets and the proposed closing target. The right amount is transaction-specific.
A realistic transaction story
A staffing company appeared highly profitable but paid workers every Friday and collected customers in forty-five days. The purchase excluded cash and the buyer underestimated the first two payroll cycles by $140,000.
What the evidence changed
The earnings were real, but the timing of cash created an immediate funding need beyond the purchase price.
What to check
- Write down the exact claim and who supplied it.
- Ask what was independently tested, by whom and under what scope.
- Build a monthly cash-cycle model and reconcile the proposed working-capital target to normal operating requirements.
- Translate any unresolved gap into cash, price, terms, timing or a decision not to proceed.